Are Social Security Disability Benefits Taxable?

When it comes to securing disability benefits, every bit matters. The amount of SSD benefits you receive is determined by how long and how much you have contributed to the social security program. This means that your benefits are contingent upon the amount of money you made and contributed before your disability.

Luckily, for the majority of people, Social Security Disability benefits are not taxable. This is beneficial because it means you receive the full amount determined by the Social Security office when your application is approved.

However, there are certain cases in which your SSD benefits can be taxable. Most individuals that have to pay taxes on their benefits receive SSDI benefits, not SSI benefits.

Breakdown of Income and Tax Payments on SSDI benefits

To determine if your benefits will be taxed, it depends on the total income for your household. The following tables breakdown the monthly income thresholds and their taxable portion:

social security disability taxes

On a yearly basis, if you are married and file taxes jointly, and make more than $32,000 per year in income then about 50% of your SSDI benefits are subject to tax. Whereas for single applicants, if you have an income of more than $25,000 but less than $34,000 then you would likely pay taxes on 50% of your benefits. If you are single and make more than $34,000 per year, then you would potentially be subject to pay taxes 85% of the value of your benefits.

When a person is taxed because their income limit is above the given amount, it will be taxed at a marginal rate. This means that people in a higher income bracket could end up paying taxes of 33% on 50-85% of their benefits. Working with an experienced SSD attorney can help you ensure your income limits are managed to maximize the amount of benefits you receive.

Are SSD Benefits Subject to State Taxes?

The taxation above describes the federal taxes that your benefits may be subject to. Some states also take out taxes on your benefits as well. Arizona does not tax social security benefits, they are a 100% SD benefit exempt state. A full list of exempt and non-exempt states is available here. This is good to know if you ever intend on moving to a different state and need to ensure your benefits are secured.

Paying Taxes on Backpay Benefits

Social security benefits are paid retroactively for the time during the application process that you were without benefits. This can cause issues for tax purposes because receiving a large lump sum of money will increase your earnings for the year and can bump you into the next earnings bracket and thus subject you to paying higher taxes on a larger portion of your benefits. To avoid this, an attorney can assist you in applying these owed benefits in your tax returns for the prior year in order to space out the increases in income.

Call JacksonWhite at (480) 467-4395 to discuss your case today.

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